Housing prices were slow before rate rise

Tuesday 30 January 2007 13:22 BST

House prices rose by just 0.3 per cent in January which is the smallest increase in eight months and is just a quarter of the 1.2 per cent increase seen in December, according to Nationwide, Britain's biggest building society.

The Bank of England shocked home owners and the City when it raised interest rates for the third time in six months — by 0.25 per cent to 5.25 per cent — earlier this month.

Fionnuala Earley, Nationwide's chief economist, said: "Only time will tell how much the surprise rise decision will affect sentiment in the housing market, but even before January's rate rise there were already some very early signs of cooling. It is likely we will now begin to see a weakening in demand."

This monthly rise means that the annual rate of house price increases fell from 10.5 per cent in December to 9.3 per cent in January.

Ms Earley said it was most likely the Bank of England's Monetary Policy Committee, which meets next week, would keep interest rates at 5.25 per cent.

If it rises to 5.5 per cent, then it would not be until May, she added.